Throughout American history, leaders have adopted a variety of economic policies during their tenures in the government. A large amount of these economic policies are derived from the economic insights of the Austrian School as well as the theory of Keynesian economics.
The Austrian School for economic thought was thought to be founded by Carl Menger, an economist from Austria, and his accompanying economic theories. In 1871, he wrote a book called the Principles of Economics which defined a lot of the initial economic principles of the Austrian School. Another notable economist following the Austrian School’s economic thought was Friedrich Hayek.
The Austrian School had a lot of interesting economic theories. In regards to prices, they believe that the factors that determine prices were subjective, such as one’s preference to purchase the item. They also believed that the costs for production of these goods were based on the value and need for other types of products/items that the production-materials could be used for. In regards to inflation, the Austrian school believes that a surplus of money will lead to a price increase if the manufacturing/production of goods does not increase as well. However, the Austrian school holds that the increase is not the same across different types of industries and goods.
In regards to economic policy, the Austrian School held the belief that government intervention in the economy should be prevented. Hayek, especially, believed that the markets balance as a result of the supply and demand relationship. A self-regulated market is perfect since it is able to maintain itself.
Keynesian economics is an economic theory that was developed by a man named John Keynes in the 20th century. Keynes held a contrary stance to the economic theory of the Austrian School. Keynes held the idea that the government needed to get involved in the economy. He believed that they needed to lower taxes in order to stimulate demand for goods and bolster the economy as a result. This was vastly different from the Austrian School’s economic policies as it was more of a “demand-side” economic theory.
Both of these economic theories have had profound influences in American history. In the Great Depression, Keynes’ ideas became a lot more popular in political groups who advocated for them to be utilized. At other times, the “Laissez-faire” type of economics espoused by the Austrian school were more popular, although both have had a profound impact.
Sources:
https://www.investopedia.com/terms/k/keynesianeconomics.asp
Give Me Liberty
https://www.investopedia.com/articles/economics/09/austrian-school-of-economics.asp
https://seekingalpha.com/article/2826066-keynesian-vs-austrian-economics
Great post! I liked how you detailed the differences between both sides. Keynes really did have an influence in most presidents in the 21st century after the great depression as you described. For example Lyndon Johnson instituted medicare and medicaid which were big parts of the way Keynes felt the government should use welfare as he had criticized his own british governement.
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